The best pre-paid currency cards: Avoid eye-watering bank fees and make your spending money go further with our guide

Using a credit or debit card abroad can be eye-wateringly expensive with foreign transaction fees and withdrawal charges adding as much as 3 per cent each every time you whip out your card.

While there are specific deals available offering reduced fees or to waive the cost altogether, a prepaid currency card can be a great way to get more bang for your buck without switching banks or credit card providers.

Many of these cards offer very competitive exchange rates or charge no commission, meaning you have more money to enjoy your holiday - on cocktails, coconuts or whatever you fancy.

Dream destinations: Avoid sneaky fees for using a debit or credit card abroad with a prepaid currency card

Rachel Springall of personal finance website Moneyfacts.co.uk says: 'Counting up the cost of using credit abroad can be a headache, which is why it's always a good idea to plan ahead before your trip. Why be charged excessive fees when you can get away without paying any?

'The cost of using a typical debit card for withdrawing £200 in cash abroad will be £9.50, and consumers need to be aware that bank charges will apply every time you use your debit card abroad. Banks can charge 2.75 per cent as a conversion fee on the amount you spend on top of a set charge for ATM withdrawals or retail purchases, which can be between £1 and £5 for each transaction.'

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HOW THIS IS MONEY CAN HELP

Once you have chosen your currency and ordered your card, it works very simply.

You can add money to them online, over the phone and some even offer the option of topping up in the Post Office.

You can then use the card to spend or withdraw cash until your money runs out and you need to top up.

Most cards are either a MasterCard or Visa so you will be able to use them anywhere you would use a normal credit card or debit card such as restaurants, shops and cash machines.

You can choose from either single currency or multi-currency cards on offer.

While these cards can be used for everyday spending at home this is often expensive with extra fees applied.

AVOID THE TRAPS

Some purchases such as car hire and hotel bookings may involve pre-authorisation. In these cases companies can estimate your final bill and ring-fence the amount on your card before the actual purchase amount is taken meaning you won’t be able to access those funds during your holiday.

Try to use a credit card for the pre-authorisation step and then use the currency card for the final payment.

You can find you have the same problem with self-service petrol stations where the amount set aside can often end up being more than you actually end up paying.

Why you should ditch your bank card on holiday for a currency card

Unless you have a credit or debit card specifically designed for overseas spending, your bank will hit you with hefty fees for using your card abroad.

Foreign transactions typically incur fees of around 2 to 3 per cent, while taking cash out of an ATM while abroad can add an extra 3 per cent.

A prepaid currency card will usually come with much lower costs and some won’t even charge you for spending on them at all.

It can be a great way to help you budget as there is no borrowing facility, meaning you can't spend more than you have loaded on to the card.

In addition, should your card get stolen thieves can only access the balance on your card rather than your full bank account.

As there is no overdraft or credit on these cards there is no credit check needed to open an account.

This means those who would likely be rejected for a leading overseas credit or debit card offer because of a weak borrowing history can open an overseas currency card easily.

Travellers can preload the card with foreign currency at any point, which means you can take advantage of exchange rate fluctuations, adding cash when the rate its best.

Are there any drawbacks?

Because the card needs to be loaded to use, there is no borrowing facility in case of emergency so you will need an extra credit or debit card just in case you can't top-up quickly.

One of the major drawbacks is that unlike purchases made with a credit card there is no Section 75 protection.

Under Section 75 of the Consumer Credit Act, any purchase between £100 and £30,000 made using a credit card is protected should something go wrong or if the item never arrives both at home and abroad.

Neither will you have Chargeback debit card protection for amounts below this threshold but most issuers will keep cash held by customers in ring-fenced accounts designed to keep it separate from their own accounts should they have financial difficulties.

Most are also backed by a bank or building society which holds your money, meaning you can get it back should the company go bust.

But electronic money is not covered by the Financial Services Compensation Scheme, which protects £75,000 of your money per institution. So if the bank or building society your prepaid account is held with fails then your money may not be safe.

Holiday money: Make sure to check the exchange rate as well as any transaction fees before applying

How to avoid a dud

Cards are offered by dozens of providers such as banks, travel agents, retailers and foreign exchange firms but make sure to check for deals online as this is where the best are typically found.

First, you will need to decide whether you need a single currency card or one that holds several currencies at once allowing you to switch between different pots of cash if you are travelling through different countries.

One of the most important things to check is the exchange rate. Some may offer a worse exchange rate even if they don’t charge you for withdrawals or purchases abroad separately.

Although the initial cost of the card is important, also check the small print carefully to find out what the fees to load the card are and if there is a minimum amount you can add at any one time.

Some providers will offer both free purchases and ATM withdrawals, others will add charges for using an ATM – remember some foreign banks will add their own amount for use of their cash machines.

There may be sneaky extras such as dormancy fees or card renewal or replacement fees you need to double check for before applying.

Don’t forget to activate your card before you head abroad to make sure you can use it.

Where to find the best deals

There are heaps of cards on the market, each with a whole host of possible charges and fees to consider, making comparison fairly difficult.

Some of the most popular deals are offered by online currency specialists such as Caxton FX, Travelex, FairFX, Moneycorp, my Travel Cash and ICE.

If you prefer to sidestep the middle man, WeSwap offers holidaymakers the opportunity to swap currency with other travellers. It currently promises to top-up your balance by £10 when you load your first £50.

The rate you will be charged will depend on how quickly you need the cash, It uses the real mid-market exchange rate and adds on 1.4 per cent for money needed instantly, 1.3 per cent for money needed in three days or 1 per cent if you can wait a week.

Transactions are free and you can make withdrawals of over £200 for fee but you can only make ten transactions per day. Ordering a replacement card costs £5 and you will need to watch out as they will slap you with a £2 monthly fee if you don't use the card for a year.

There are no fees for spending abroad but it will add a £1 fee for taking out cash on its Anywhere card, $2 for the Dollar card and €1.50 on the Euro card.

One major benefit of this provider is that it lets you spend any remaining balance in the UK for free if you have a Euro or Dollar card, it applies 1.4 per cent on its Anywhere card though.

Moneyfacts has put together the below table for This is Money of the best Euro and US Dollar prepaid cards on offer at the moment.

TOP THREE EURO AND US DOLLAR PREPAID CARDS

Card name

Transaction fees

Foreign exchange fees

Issue fees

ATM charges

Additional Info

Exchanging £1,000 would get you €/$(as of April 21)

my Travel Cash Currency Card

Nil

2.99%

Nil

Nil

Pays 1% cashback on all purchases.Top-up available online and using a mobile app with a debit card or credit card

€1,230.10/$1390.40

Travelex Cash Passport

Nil

5.75%

Nil

Nil

Top up available online, over the phone, in store with a debit card or credit card or BACS. 24/7 Card Services team to assist with all queries. Free replacement card or emergency cash service (up to the available balance on the card) available

€1,235.80/$1397.10

ICE Travellers Cashcard

Nil

Nil

£4.75 (if less than £700 loaded)

Nil

1.5% cashback on all purchases on Euro card. 1.5% back on spends over $50 on US Dollar card.Top up by bank transfer, debit card, credit card. Free backup card when opening card account

€1,2187/$1,3770

Source: Moneyfacts.co.uk and This is Money, correct as of April 20 2016.

Could it be worth waiting for the new Travelex Supercard?

Currency specialist Travelex lauched a pilot scheme last year for a game-changing new Supercard, which allows customers to sidestep ATM fees and transaction charges while on holiday.

The technology links up to five of your existing debit or credit cards to its Supercard via an app. Cardholders then pay or withdraw cash as normal using the special Travelex card, which looks and feels like a bank card.

When you have internet access,you can swipe between different payment methods or just stick with the default card you set up if you don't want to incur roaming charges.

Transactions are treated as domestic payments rather than foreign ones, saving you overseas fees, plus it also means you can still clock up any rewards points or cashback your cards offer.

Supercard transactions are processed using the Visa Europe Exchange Rate and no extra commission or charges are added on.

The pilot phase is due to finish on June 7 but it will be launching nationwide in the summer, according to Travelex.

Tuxedo, the company behind the Supercard technology has partnered with STA travel in America to launch a similar offering.

A similar Curve Card has also been announced. This works in the same way adding your cards to a mobile wallet which works with a physical card.

Spending abroad is not completely free, but cardholders will pay the MasterCard wholesale rate plus 1 per cent on foreign transactions.

Withdrawing cash while overseas will cost you slightly more. It applies a £2 fee on top of the 1 per cent exchange fee.

Again this has only been offered to a small group of people so far but it is due to launch later this summer.

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